A what you say? To put in more meaningful terms, if your employer died today, would the company continue to exist? Is there a plan in place to keep the business going? If not, is there a plan in place to soften the economic impact on employees, especially key employees in the event of an untimely death?
Safe to say that there isn’t a day that goes by that a small business in this country isn’t faced with this situation, and if left unplanned for, it is not just a blow to the family of the deceased, but to everyone who depended on their jobs to take care of their families. A succession plan is simply a road map for the company, the heirs and the employees to follow to ensure the last economic impact on all.
Often in small businesses there is a key employee that, in the absence of the boss, could step in and run the company without any severe loss of momentum. Given the resources, this person could well step in and take over as the new owner and the company would have its’ future intact. Those resources, in the form of business life insurance, can be planned for in a succession plan.
In that model, an insurance policy could buy the family out and provide working capital for the transition. Legal documents would transfer the ownership of the company and its’ assets to the new owner.
Another avenue would be if the family wanted to maintain ownership and control. A life insurance policy that provides a pool of working capital is a prudent step. Even though the family may have a good working knowledge of the business, until customers see that a business if on solid ground, there may be some hesitancy about continuing a flow of orders until they are comfortable with the new leadership. In many cases, in spite of best efforts, customers will be lost. The capital to weather that storm and work toward new accounts and a new customer base will be crucial to the surival of the company.
Bottom line. Life insurance, usually in the form of term insurance,Â is an inexpensive way to ensure that faithful employees can continue a company beyond your death. If there is no desire or possibility that the company could or would continue on, life insurance can provide a reasonable severance resource that will help those employees move on.